SEC sues China Holdings' Lu for bad audit letters 2009-11-02 14:18 ET - Street Wire Also Street Wire (U-*SEC) U.S. Securities and Exchange Commission
Also Street Wire (U-CHHL) China Holdings Inc
by Mike Caswell The U.S. Securities and Exchange Commission has filed civil charges against Vancouver resident Julianna Lu (also known as Jenny Lu) for using fraudulent audit letters in the financial results for an OTC Bulletin Board company, China Holdings Inc. The SEC claims that Ms. Lu, 47, took draft letters provided by the auditors, and attached them to the company's year-end results in 2007, without authorization. Then, when the auditor resigned, she fabricated a letter stating that the company and auditor had no disagreements, the SEC says. The SEC filed a brief complaint against Ms. Lu on Oct. 30, 2009, in the District of Columbia. It identifies her as the chief executive officer, treasurer and chairman of China Holdings. While the company lists addresses in both Las Vegas and China, the SEC says Ms. Lu is a resident of Vancouver. According to the complaint, Ms. Lu had trouble securing audit opinion letters for the company's results in 2007. She required opinions from two firms that year, because the company's former auditor had resigned in November, 2007. Filing rules required that both the current auditor (Sherb & Co. LLP) and the former auditor (RBSM LLP) prepare opinion letters. The first problem, according to the complaint, is that neither auditor would approve the company's results until Ms. Lu made "material adjustments" to them. (The complaint provides no details of the adjustments.) The SEC says the auditors provided Ms. Lu with their audit letters for inclusion in a draft copy of the Form 10-KSB, because they expected she would make the changes they requested. The letters were not to be used in the final filing without approval from the audit firms. Ms. Lu did not make the changes though. Instead, she simply filed and signed the Form 10-KSB without authorization from the auditors, the SEC claims. After learning that she had gone ahead with the filing, both audit firms raised objections, as did China Holdings' own lawyer. Three days after Ms. Lu filed the annuals, both Sherb and the company's lawyer resigned. As with any auditor's resignation, Ms. Lu was required to file a Form 8-K stating the reason. All such reports must include a letter from the auditor, explaining whether there were any disagreements. At first, Ms. Lu simply filed the report without including the letter, the complaint states. The April 23, 2008, Form 8-K stated that there were no disagreements between the company and Sherb. The SEC says it advised her that day that she must include a letter from Sherb. Ms. Lu then filed an amended Form 8-K on May 6, 2008, which included a letter purportedly from Sherb stating that there were no disagreements. The problem, according to the complaint, is that Ms. Lu fabricated the letter. The actual letter she received from Sherb stated that the firm "never consented to our audit report being included in the financial statements for [2007]." The SEC said she knew, or was reckless in not knowing, that statements made in the company's filings were false. The regulator is seeking appropriate civil penalties and an order banning Ms. Lu from serving as an officer or a director of a public company. China Holdings claims to be in the business of planning "China Vegas," a 500-hectare site touted as the Las Vegas of China. The company, which has a 52-week high of four cents, closed Friday at three cents. | 
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